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Which one should you choose between an overdraft account and personal loan?


Which one should you choose between an overdraft account and personal loan?

You can choose between either an overdraft facility or a personal loan. When you choose to obtain a personal loan, this is unsecured, i.e. it is not secured against any solid asset such as your car or home. Whenever you need money swiftly, there are two options, namely overdraft or personal loans. The overdraft facility will help you borrow your required amount through the current account of your bank. There is of course a cap on the amount that can be withdrawn.

Which is the best option for you? Personal loans usually have a bit of paperwork to deal with. You will have to possess a good credit/CIBIL score in order to get the loan sanctioned. You will have to follow the same process of applying for a personal loan every time you require money urgently. Also, you may receive the money once the loan formalities are completed and it has been disbursed which sometimes takes a sizable amount of time.

Once the overdraft account is set up, you can withdraw money within 2-3 hours in most cases and at the most within a single business day. You do not have to keep setting up overdraft accounts every single time you require more cash in hand. Personal loans are otherwise hassle free but the monthly EMI that you pay is fixed for the specified loan tenor. You have to make timely EMI payments as well. This could be an issue for people who have varying income each month.

The Personal Overdraft facility enables taking the amount required within the limits that are set by the bank. You can spread your repayment based on your own convenience. You can pay within a few days or weeks or even over a few months. Personal loans come with a considerable expenditure in terms of interest costs. If you make prepayments, you will have to shell out charges for the same. With the Overdraft facility, you will not have to pay any interest on the amount that you have not taken from the limit assigned to you by the bank. You can prepay amounts easily without having to fork out any charges for the same.

In case you regularly apply for personal loans and repay them swiftly, the CIBIL score will be fluctuating and other issues like cheque bounces can hamper your score adversely. This will lead to difficulties in getting credit cards or loans in the future. If you choose the Overdraft account, you can bypass these issues with aplomb. You can only have a single loan which is being serviced regularly and this will boost your CIBIL Score positively.

As can be seen, while personal loans are often good options for those who require money urgently, overdraft facilities offered by banks seem to be the most flexible and convenient option by all means. If you are going to need money several times in the future, you might as well set up an overdraft account. However, if you only need one loan which has a major principal amount and one which you wish to repay over a longer tenor, then a personal loan fits the bill.

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